Small Business Retirement Plan

[S T]

What would be the best retirement plan for a Schedule C employer to provide for himself and one employee?

Employee would like up to 3% reduction in gross wages, owner would match employee's 3% but owner would like to contribute no more than $5000 to his own personal account.

Owner's spouse (non employee of busines) would contribute to her own IRA.

Sandy

[veritas]

sounds like a Simple plan would be just the ticket.

[S T]

Some Confusion

If employer sets up Simple Plan for Employee, then that plan would be offered for any future employees (but I understand it can be modified from year to year)

Is the owner going to fund his own retirement benefit under the SIMPLE plan?
Or does the owner just continue with his own Individual IRA, that is where I am confused.

If the Owner sets up a SEP IRA for himself he also has to include his employee correct?

Thanks,
Sandy

[Unregistered]

correct

that's right. If owner sets up a SEP and puts in 25% of his pay he has to put in 25% of employee's pay. with the SIMPLE the owner would only be on the hook for 2% of employee's pay if employee is contributing, 3% if there are no elective deferrals. SEP's only work if you have 1 owner, no employees, or no qualifying employees (under age 21, less than 3 years employment, less than $450 in annual income). sounds like a SIMPLE would be perfect. we set these up for clients, so if this person needs any help we can be reached via our website:

https://www.nctaxpros.net

[S T]

Simple IRA

Another question,

if the employer has one employee and that employee wants 3% elective deferral and the employer matches 3%.

Is the employer/employee obligated to also join the Simple IRA plan? Can the employer/employee opt out of the plan and just fund his own personal IRA?

When does the employee/employer fund for his own account, monthly or can it be done when we know what the net profits are for year end extending to the 4/15 after the close of the tax year.

Trying to get a handle on these rules and regs relating to the Simple IRA.

Sandy

[veritas]

I don't think the owner would have to participate but why would you not want to? You can contribute the same or more than an IRA assuming he has enough earnings. You have till the due date of the tax return to fund the owners simple ira account.

Keep in mind if you withold from an employees check an amount for his simple account it must be remitted within 30 days.

[S T]

Simple IRA

Oh these are just questions from the small business Employer. Based on past net profit which his amount would be calculated on, we would be very close to his maximum on an IRA contribution.

The owner is worried that if his net profits from the business are too high he will be "caught" in funding his account for a higher amount than the maximum over age 50 IRA. He is only budgeting $5,000 for 2006 tax year, and my projected calculations could be as much as $6,000 - $7,000 employee/employer contribution for 2006 based on 3% contributions. The owner just doesn't want to be in a position to be required to fund that much!

I am just trying to get all the answers to compare with what Fidelity and Vanguard are advising him.

Learning curve for me on the Simple's!

Thanks for your repsonses and any guidance you can lend!

Sandy